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Livestock and arable industry news

Summer 2017

Oliver McEntyre, our National Agriculture Strategy Director, gives us his insight into dairy, beef and sheep, arable, pigs and poultry and finance. Discover the latest news and updates from the industry.

Dairy

The spring flush starts to take effect

The milk price took a knock in late spring, with many companies citing the spring flush as the reason. Looking at the national yield graphs, it’s easy to see why – production usually peaks in May and tapers off as the quality and abundance of grass drops. National trends show yields to be at the lowest in late summer and early autumn, so it wouldn’t be a surprise to see prices beginning to lift as summer goes on and supplies start to tighten.

Milk, once processed, can be shipped and traded around the world, so production across Europe will also effect prices. Agriculture and Horticulture Development Board (AHDB) Dairy reported a bumper spring for Ireland, with figures up by 4% in March. This can be attributed to a 25% increase in lactating cattle aged between 4 and 6 years old. While this is an impressive increase, Ireland only produces 5% of the EU’s milk so, by my reckoning, this will only equate to a 0.2% increase in total EU production. The key nations to watch are France and Germany, which each produce around 20% of the EU’s total milk. If their yields are up, we could see some oversupply in the market. It’s encouraging to see commodity prices up significantly on last year: bulk cream has increased by double and butter is showing a similar trend. One sticking point is skimmed milk powder, which is up only 29% on last year. Overall, the outlook remains positive for the sector.

Finally, because spring was very warm and mild, the first crop of grass came very early. A very dry April and May mean growth and quality could be affected. It’s therefore advisable to cut grass when it’s ready – rather than waiting until the date it is usually cut.

Beef and sheep

The price of cattle holds firm

Cattle continues to be in good demand, with prices in May exceeding the 5-year average. Trends show that prices tend to go upwards as the year goes on, suggesting the price will remain strong. Australia is the UK’s largest non-EU trading partner for beef, but they cut their herd significantly recently and are only starting the rebuild now. The weakness in the British pound, combined with limited exports from Australia, have contributed towards the higher price in the UK – and restricted the attractiveness of the UK as a target market. Time will tell if new trade deals with Australia affect UK prices. Back in the UK, the weight of cattle slaughtered at 16 months is reported to be the highest it’s been in 10 years. This can be attributed to efficiencies in food conversion, genetic improvements and good husbandry. This sets the industry in good stead for the years to come – the quicker the animal reaches grade and slaughter weight, the lower the production costs.

Lamb trade was also strong, and while the price has remained similar to that of 12 months ago, there is still a margin in the sector. The number being sold remains high, perhaps due to backlog from autumn – numbers were down on 2015 due to the poor quality of grazing. Spring lambs are gaining in volume, with over 22,000 sold in the first week of May. This didn’t affect the prices. The usual trend is for prices to dip as more lambs reach slaughter weight and grade, so for those finishing lambs in the summer months, efficiency will be key to securing a margin. Alternatively, one could hold on to lambs until autumn and winter and take a gamble on the usual price rise.

New Zealand’s lamb production is down again this year – the estimated export figure for 2016/7 is 293,000 tonnes, which is a long way short of the 2012/3 figure of 310,000 tonnes. All of this is good news for sheep farms, especially as China still remains the chief target for New Zealand’s exports, and when combined with a weak pound, imports are becoming more expensive.

Arable

A dry spring may knock yields

The fine balance between good planting conditions and good growing conditions seems to have gone rather off kilter following a dry April and May, when most crops were already in the ground. In Cumbria there have been reports of small rivers running dry – an indicator of how little rain had fallen in late spring. Taking into account the dry winter, some are warning that yields could be down by 20%. Potato growth has been slow for some too but, as ever with rainfall and all things connected to the environment, there is still time for things to improve – especially if there’s consistent and steady rain.

The price for feed and milling remains steady in the £140/£150 per tonne bracket. Barley is at around £120 per tonne – mainly driven by the weakness of the pound until now, but the upcoming harvest from the northern hemisphere will likely affect the price significantly too. Many growers will be hoping for sensible rainfall for the UK and good yields to maintain income later in the year. Demand for grain – wheat, barley and maize – continues to grow year-on-year.

Although not a great deal of maize is grown in the UK, the increase in demand for maize easily outstrips the increases in demand for wheat and barley. As the 2 compete, especially within the animal feed sector, the significance of the US wheat crop is high to UK growers. As of early May, the United States Department of Agriculture (USDA) reported that only 47% of the 2017 crop had been planted compared with 61% at the same point last season. If growing conditions are not ideal, there is potential to see supply tightening later in the year for both maize and wheat.

Pigs and poultry

Pig prices have increased again

The pig price surged in May, lifting to the mid-150p per kilo. In financial terms, this equates to an increase of over £30 per pig on a 76kg deadweight carcass. These figures may seem large, but considering the low pig price in the last 2 years, much of the added income will be used to claw back any losses. Any additional finance may be put towards re-investment in the farm and infrastructure, which is likely to have been limited during the market low. The price is being driven by a decline in clean pigs and the weak pound, which makes home-reared meat more competitive.

Clean pig slaughterings are down across Europe, including the UK. Here, we’re slaughtering just over 190,000 pigs per week, which is down over 6% year-on-year. Germany is also seeing a reduction, with a weekly kill close to 900,000. Overall, lower slaughter numbers, steady demand and weak pound give the industry a great outlook for the rest of 2017.

Poultry is one of the few meat sectors that sees demand rising year-on-year. This, combined with a number of large retailers committing to sell only UK-produced birds, sees a firm bottom of the market. There’s also a good degree of stability from partnerships between larger processors and producers. Roll the reasonable grain price into the equation and good returns are there for efficient producers.

Likewise, egg production has a very stable feel at the moment. In Q1 for 2017, 7.4 million cases of eggs were packed in the UK – an increase of 2.8% when compared to the same time last year. The average price of 70.9p per dozen is slightly up on Q4 of 2016, but is actually down by 2.4% year-on-year. Increased supply is worth keeping an eye on as the year progresses – farmgate prices could be affected.

Banking and finance

Debt levels continue to rise

The industry’s bank debt increased by 2.8% from the end of Q1 when compared to 2016 – sitting at £18.2 billion – which is usual for this time period. This is just over half a billion pounds higher than March 2016 and, given usual trends, it’s possible bank debt to the industry will be in excess of £18.6 billion by October/November 2017, which is when borrowing traditionally peaks.

Interestingly, credit balances within the industry also continue to trend upwards. As of March 2017, the total cash in the bank was at £7.1 billion, up £53 million on the previous month and up £822 million (11.5%) on March 2016. Although, as expected, the figure for Q1, compared to the end of December 2016, is down by around 3.8% (£285 million).

Within the figures is a split of debt and credits held in foreign currency – the figure for the end of March is around £225 million of debt compared to £270 million credit. Both the figures will be affected by the value of the pound (mainly against the euro and US dollar), but it’s interesting that in the agricultural banking world of foreign currency, the credit outweighs the debt by 120%.

If you’re looking to expand or invest in your business, get in touch with your Agricultural Manager.

All livestock and dairy prices are sourced from the Agriculture and Horticulture Development Board (AHDB) www.ahdb.org.uk/

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